Most of us have heard cocktail party talk about someone who had a lot of assets but managed to file bankruptcy and keep all of their stuff. Usually, the explanation has to do with exemptions and fully encumbered property. However, every once in a while, someone tries to play fast and loose with the trustee. As a public service, I would suggest that anyone contemplating this scheme talk to Donovan Lindhorst.
Donovan Lindhorst was a roofing contractor. He got in trouble with the union for using non-union workers and for not accurately reporting his workers' time or appropriately funding their benefits. That was a bad idea because the union filed an involuntary bankruptcy petition against him. No. 07-34117, Donovan Louis Lindhorst (Bankr. Ore. 2007).
During the run-up to his bankruptcy, he withdrew money from his accounts in the form of cash, cashier's checks or checks payable to cash in an amount exceeding $800,000. However, when he filed his schedules and statement of financial affairs, he neglected to mention the money that he had transferred to his son, his wife and his wife's trust and the vehicles, real estate, cash and gold and silver coins that he still owned. He testified that his schedules and statements were true and correct at his creditors' meeting and on the first day of his Rule 2004 exam. On the second day of the exam, he refused to answer any additional questions.
The alert and diligent trustee secured an ex parte order to search the debtor's property. Here is just a sample of what they found:
As of February 25, 2010, the Trustee had recovered assets totaling $643,022.31 and had cash on hand of $283,591.81. The U.S. Trustee filed an action objecting to the Debtor's discharge. The Debtor agreed to waive his discharge.
The U.S. Attorney obtained a five count indictment against Lindhorst. No. 3:09-cr-00303, United States v. Donovan Lindhorst (D. Ore. 2009). On August 23, 2010, he agreed to plead guilty to two counts. As part of his plea agreement, he had to write in his own handwriting that he was guilty of the two counts.
He is now subject to a five year prison sentence, supervised release after completion of his sentence, a $250,000 fine and restitution.
Anyone thinking about pursuing a similar scheme should keep this in mind. Assets leave a paper trail. Just because you withdraw the money from your account and give it to your wife and son or hide it in a safe does not mean that it doesn't exist.
Don't do it. You can get caught. You can lose your discharge. You can go to jail. Just like Donovan Lindhorst.